Freddie Mac's Latest Aid Request Shows Steep Drop
That's far less than in the third quarter, when Freddie received $6 billion from the government. It received $7.6 billion for all of 2011.
Freddie Mac said Thursday that it lost $1 billion, or 32 cents per share, in the October-December quarter. That compares with a loss of $1.72 billion, or 53 cents a share, in the same quarter of 2010.
Freddie's losses are decreasing because of a drop in the number of homeowners refinancing at lower mortgages rates and paying less interest. Fewer homeowners are refinancing because many have already done so, or can't qualify for the current record-low rates. Charles E. Haldeman Jr., Freddie's chief executive, also said the company's portfolio of home loans is improving.
Taxpayers have spent roughly $170 billion to rescue Fannie and Freddie, the most expensive bailout of the 2008 financial crisis. The government estimates that it could cost up to $259 billion more to support the companies through 2014, after subtracting dividend payments.
Fannie and Freddie are required to pay 10 percent dividends on the government money they receive.
Freddie and Washington-based Fannie own or guarantee about half of all U.S. mortgages, or nearly 31 million home loans, which are worth more than $5 trillion. Along with other federal agencies, they backed nearly 90 percent of new mortgages over the past year.
"We continue to be a vital source of mortgage funding -- last year alone we provided over $360 billion of liquidity to the market. This enabled nearly two million American families to buy or rent a home," Haldeman said.
Housing Market Improves
The housing market has slowly begun to improve, but has a long way to go before it's healthy. Many homeowners are still defaulting on their mortgages. Unemployment remains high at 8.3 percent. And the percentage of those who are late by 90 days or more on their monthly mortgage payments has been rising.
Fannie and Freddie buy home loans from banks and other lenders, package them into bonds with a guarantee against default, and then sell them to investors around the world. When property values drop, more homeowners default, either because they are unable to afford the payments or because they owe more than the property is worth. Because of the guarantees, Fannie and Freddie must pay for the losses.
Fewer foreclosures, and delays in foreclosure processing because of a 16-month government investigation into mortgage lending practices, had also reduced the companies' projected losses. But that government probe ended last month with a $25 billion settlement, which might cause foreclosure rates to rise.
Pressure continues on the government to eliminate Fannie and Freddie and reduce taxpayers' exposure to risk. The Treasury Department put forward a plan in February to slowly dissolve Fannie and Freddie, although that process could take years. Abolishing Fannie and Freddie would transform how homes are bought and redefine who can afford them.
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